Recording activity for business purposes is different from timekeeping solely for billing purposes. Most solo and small firms understand the need to capture all their effort as they strive to spend more time working on client matters. However, some firms have moved to flat fees and stopped recording hours. As many Biglaw firms shift to alternative fees, they need to continue to record hours. Regardless of the reason for flat fees, it’s not good practice to stop keeping track of hours. Also, all should reject the value billing theory that recording time is unnecessary. Timekeeping is not dead for Biglaw or any law firm.
My law firm work experience is limited to Canadian Biglaw, where I was a finance director about fifteen years ago prior to attending law school in Arizona. However, I have spent the past seven years talking with law firms of all sizes, mainly for Traklight and Evolve Law but also for my key performance indicator (KPI) writing. The KPI work has focused on solos and small law firms. I believe that Biglaw can learn from their best practices, particularly with respect to timekeeping for budgeting, costing, and pricing. In addition, considering that the Big 4 accounting firms track time, Biglaw should pay attention.
To start, for practical purposes, Biglaw can be viewed as many small firms within one large partnership. Attorneys working in mid-size firms often compare their practice to that of a solo or small firm. Therefore, from a matter and practice area point of view, Biglaw practice areas within a geographic location can be treated as a smaller department for measurement process.
Next, keeping track of your time when you are selling a service or a product is just good business practice. And law is a business, particularly Biglaw. I will not even touch upon the ethical side of tracking time for fee disputes because I am advocating timekeeping of all billable and non-billable time. Do not confuse timekeeping to bill by the hour with recording time for business purposes.
Timekeeping is the key to understanding your costs and pricing because human effort is still the law’s largest expense. I am not saying to ignore the other direct costs of serving clients, such as technology, but capture what people are doing, for how long. I recently presented on key performance indicators (KPIs) at a Thomson Reuters Canada small law seminar with a Toronto solo lawyer, who realized that he needed to record his time as a ‘raw material’ to his offerings for pricing and performance measurement. An analogy is that Ford knows precisely how much it costs to build my F150 for both materials and labor. Costing, budgeting, and pricing are management accounting principles that are used for products and service businesses, including the law.
The basic approach for costing and pricing in Biglaw is the same as small law, just as was discussed here around technology and process improvement. To decide how much a matter contributes to the overhead of the firm and the bottom line, the correct number of hours spent must be available to do calculations. By reviewing these hours, an attorney (or accountant or anyone) can evaluate whether the correct flat fee is charged or even if the billable hour rate is covering the expenses. This approach should even be used for contingency matter profitability calculations.
Recording the non-billable or non-client hours can also help evaluate the efficiency of the department or practice administration. For example, use time reporting information to evaluate out how many hours, and therefore dollars, are spent acquiring clients.
Finally, the hour information will help you identify where attorneys and paralegals might be struggling or have gaps in their training. Encouraging full and accurate reporting is good for all aspects of running your practice or department. Knowledge is power and without the actual hour information, you are left to guess on pricing and efficiency. A warm shout out to Adam Cameras of Legal Talk Network for the inspiration for this title based on his Darwin Talk in Denver, Time is the New Green. If you don’t agree that time should still be recorded, happy to discuss on @maryjuetten. #onwards.
Mary E. Juetten lives on the West Coast, holds a J.D., and is both an American and Canadian professional accountant. Mary is passionate about metrics that matter and access to justice. She founded Traklight and Evolve Law and consults as an Access Advocate for LegalShield. You can reach her by email at firstname.lastname@example.org or on Twitter: @maryjuetten.Be Sociable, Share!